Australian housing market built on $500 billion of ‘liar loans’: UBS

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Half a trillion dollars’ worth of “liar loans” are propping up the Australian banking sector, new research from UBS suggests – a powder keg in an economy where interest rates are expected to soon rise from record lows.

About one-third of Australians were not completely truthful on their home loan application over the past 12 months, marking a significant increase on the previous year, according to a 907-person survey, which UBS presents with a 95 per cent confidence level.

UBS banking analyst Jonathan Mott said 26 years of unbroken GDP growth had led to “a large level of complacency within the economy” and that “more needs to be done” by banks to address the problem.

The UBS survey showed an increase in factually inaccurate loan approvals.The UBS survey showed an increase in factually inaccurate loan approvals. Photo: UBS

The banking analysts also took a shot at, Australian Prudential Regulation Authority (APRA), saying tighter policy aimed at stabilising capital city housing markets is having little on-the-ground effect.

“Many mortgagors have overstated their income and assets, while others have understated their living expenses and liabilities,” Mr Mott said.

“Many mortgagors have overstated their income and assets, while others have understated their living expenses and liabilities.”UBS banking analyst Jonathan Mott

“In the event that household income growth remains subdued or interest rates continue to rise (via the RBA or bank mortgage repricing) this is likely to place pressure on many households. While this could be offset by reduced spending by leveraged customers this would have a broader economic impact.”

UBS suggested that $500 billion worth of mortgages may be based on factually inaccurate. Source: ABS as at 31 July, UBS Evidence Lab, UBS estimates.UBS suggested that $500 billion worth of mortgages may be based on factually inaccurate. Source: ABS as at 31 July, UBS Evidence Lab, UBS estimates. Photo: UBS

Meanwhile 46 per cent of respondents said it was easier to get a mortgage approved this year than in previous years, compared with just 17 per cent saying it is harder – figures that bring the work of APRA into question.

“When asked about the amount of supporting documentation/verification required participants stated there has been no increase, also consistent across brokers, banks and level of factual accuracy,” Mr Mott said.

“Despite recent macroprudential policies, the findings of this survey and the fact that mortgage approvals remain at record levels implies that there is little evidence mortgage underwriting standards have been tightened through the eyes of the consumer.”

With national household debt sitting at record highs and income growth continuing to crawl, a lack of clarity on mortgage strength could throw severe concerns over Australia’s red-hot housing market.

The research is made considerably more troubling following statements made by the Reserve Bank of Australia in April that as many as one-third of Australian borrowers have little or no financial buffer against higher interest rates, and that most economists now believe the next from the RBA will be up rather than down.

Meanwhile the gap between the official RBA cash rate and real mortgage rates has doubled in the past decade and is the widest it has been since 1994.

ANZ is named as the bank with the worst record, according to the survey, which showed just 55 per cent of respondents with a mortgage from the bank were completely accurate, which compares with the industry’s official 99 per cent confidence level.

The ANZ figure compares with 66 per cent in the 2016 report and sits below the 62 per cent result from the survey’s NAB respondents.

An ANZ spokesperson told Domain the 907-person UBS survey was “extremely limited” given ANZ has more than one million home loans and that the bank has processes in place designed to asses home loans “conservatively”.

However, the bank did say the survey reinforces the need for the introduction of Comprehensive Credit Reporting, which ANZ “strongly supports”.

APRA chairman Wayne Byres hit out against banks on Friday, saying financial giants should “talk about problems and what you’re doing in response to them, rather than hoping no one finds out”.

“If you think about many of the issues that now are generating headlines and public debate, many of them happened three or four years ago. No one revealed them,” Mr Byres said.

 

Source :  All Homes

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